Catalysing an Economic Resurgence
26 May, 2010
by Jordan B. MacLeod
Earlier today, PIMCO's Bill Gross said that default may be the only means available for some nations to deal with mounting debt problems. In his June investment outlook, the world's largest mutual fund manager argued that in severe cases sovereign debts are likely to prove overwhelming even with concerted reductions in deficit spending.
This view merely adds to the chorus of increasingly pessimistic analysts, fund managers and economists who have expressed concern in recent weeks over deteriorating conditions. Societe Generale's Albert Edwards, for example, recently argued that the eurozone and US are on the edge of a deflationary precipice that will ultimately yield monetisation and massive inflation.
Stephen Gallo of Schneider Foreign Exchange stated on Tuesday that the European debt crisis is becoming a global phenomenon and “could be Lehman Bros times 5 or even times 10.” When asked what governments could do to avert this crisis, he said “governments are part of the problem... that's why it's a sovereign debt crisis and infinitely more catastrophic if it starts to snowball.”
Gallo's observation hammers home the point I have been making for months. Namely, the institutions and actors responsible for solving this financial crisis are indeed a part of the problem and their tools for confronting deflation and out of control sovereign debt are wholly inadequate for the job.
At the root of the financial crisis is a crisis in paradigms. Until this reality is acknowledged there will be no end to the uncertainty and turmoil. This takes us into the uncomfortable territory of unearthing old assumptions and vague belief-systems about every aspect of the economic system, theory and tools.
Nevertheless, there is good news for a world immersed in crises. A deeper examination of systemic assumptions and architecture reveals that indeed new tools and thinking hold massive, untapped potential to catalyse a resurgence in global prosperity and free market innovation. These have not been given serious consideration, let alone deployed, since the likes of John Maynard Keynes and Irving Fisher grappled with the Great Depression and building the post-World War II economy.
The financial institutions and actors with the vision and willingness to explore this new territory and thinking will be poised to take leadership positions in bringing about needed change and to benefit most from the opportunities inherent to momentous turning points in world history.
Let's not believe for an instant that the challenges of our time will require anything less.
Jordan MacLeod is co-founder and partner at Cornerstone Global Associates and is the author of New Currency: How Money Changes the World as We Know It. He heads the Global Capitalism Unit at Cornerstone, which is focused on helping clients capitalize on emerging opportunities and trends in a rapidly evolving global economy.
Cornerstone Global Associates is a high-end strategy and management consultancy that offers exceptional value. Its mission is to tackle seemingly intractable challenges to deliver cost-effective solutions for clients across all sectors. It harnesses the expertise and experience of an international and multi-disciplinary team of partners, senior consultants and associates, and uses proven collaborative and holistic approaches and techniques to address clients' individual needs and to achieve optimal results.